Country Forecast India

Background: India gained independence in 1947, after two centuries of British colonial rule. Partition at the same time created the state of Pakistan, with which India has fought three wars, two over the disputed territory of Kashmir. India is the second most populous country in the world, with more than 1.2bn people in 2013. Its economy is the 11th-largest in the world when measured in nominal US dollars, but it is the third-largest when measured at purchasing power parity exchange rates. The large and inefficient public sector coexists with a sizeable and diversified private sector.

Political structure: India has been a democracy since independence. The growing importance of regional parties has made coalition government the norm at federal level for three decades. In 2014 the Bharatiya Janata Party reversed this trend by winning a majority in the general election. Democratic procedures are, on the whole, respected. The prime minister is the leader of the government, requiring the support of a majority in parliament. The president is the head of state and, although limited in executive power, can influence the formation of governments at both state and national levels when
no party has gained an outright majority. The judiciary is formally independent and is becoming increasingly assertive.

Policy issues: India was fairly insulated from the 2009 global recession compared with most countries in Asia. However, a bout of populist spending initiated in 2008 has wrought havoc on the public finances, and progress on market-friendly reforms has slowed in recent years. Stringent controls on importing gold have narrowed the shortfall on the current account, which expanded to historic highs in 2013 as gold became a hedge against the rapid pace of price increases. The new government needs to remain firm on curbing India's twin fiscal and current-account deficits in order to boost economic growth, while simultaneously keeping a lid on consumer price inflation.
SHOW LESS
READ MORE >

Business environment outlook: Macroeconomic environmentBalancing inflation with reviving economic growth will be a key challengeEconomic growth could exceed 8% if the government delivers on its promises

Business environment outlook: Policy towards private enterprise and competiThere will be a focus on minimum government and good governanceDeregulation of state-owned enterprises will be prioritised

Business environment outlook: TaxesTax reform will include a new direct tax code

Business environment outlook: FinancingHigh levels of NPLs will pose a significant risk to banking sector health

Business environment outlook: The labour marketLabour reforms will provide a growth impetus to the manufacturing sector

Business environment outlook: InfrastructureLand reform will be necessary for infrastructural developmentThe government will strive to meet a target 25 km of new highway a dayAlternative energy sources will partially alleviate chronic energy shortages

Long-term outlook: The long-term outlookAn upsurge in remittances will benefit the economyEconomic disparities between states will remain wideSuccess will remain concentrated in a few high-tech industriesPoverty will pose a political challenge if growth is not balanced